AIG’s Problems Started With Liberal Regulation

This morning President Obama had a photo and Q&A session right before he left the Whitehouse for a flight out to the Left Coast to appear on Jay Leno’s show. He said something about AIG that was just plain-outright wrong!

He said the reason for American International Group Inc.’s failure was the lack of government regulation. The regulators should have been able to prevent AIG from insuring all of the banks that had issued loans for property that defaulted. With regulation, he said, AIG would have not been allowed to issue such insurance.

The reason AIG ran into trouble was they had a whole lot of banks turn belly-up when the economy turned south and AIG had to pay out more than the cash reserves they had on hand. Think about that for a while. They should have done more due diligence in examining the banks before they issued the policies. If they had charged more for the extra risk, they might have lost some of the business that drug them under.

The root cause of AIG’s problems was not their mix of customers, but something more insidious than their management problems: government regulation.

The government regulation I am speaking about is the liberals meddling in the banking industry’s business practices since the 1960’s. Over 40 years of incrementally forcing the banks to issue home mortgages to people who could not afford the payments was the root cause of this whole mess. All this was done under the touchy-feely liberal program of affordable housing, which was nothing more than the continued forced relaxing of the credit requirements.

Banks had to have an increasing percentage of loans issued to people who should be renting and not owning a home. When the economy turned, a majority of the “poor” people defaulted on their loans in record numbers, making the economic outlook even worse. Then on top of that President Obama started talking down the economy even more (remember the Democrat Party believes a crises should never go to waste) and the US job market tanked.

Like a good company intent on protecting it’s shareholders, they bundled some of the loans and created financial instruments (which, by the way, are totally legal and ethical) which it sold to help spread the risk.

Now Obama is requiring more government regulation to correct the problem that was caused by too much government regulation. Who said Obama was smart? OK, I admit he is a really smart Marxist using this great crisis (read opportunity) to get rid of capitalism by back-door means.